Your Bank Is Not Your Friend, Part 5,928

The other day, I was looking at GIC rates, because that’s what COOL GUYS like me do. Older readers, think of me like the Fonz, wearing that kickass leather jacket and practically beating the ladies away with a stick.

So we’re going to start things off with a little quiz. Which bank do you think has the best one year GIC rate in Canada?

Go ahead, think about it. Take some time. Here, I’ll insert some very soothing music.

Okay, maybe we have different ideas of soothing. I might have an anger problem.

Now that you have the answer in your head, let’s repeat the question, but this time with a five year GIC. If you’re like most people, you’re probably thinking the same bank. Because that’s only logical.

So which bank did you choose? I’m going to go out on a limb and say it was Tangerine. That company has not only done a terrific job winning over the PF community, but they’re also well known for having attractive interest rates paid to savers. The whole business model of having no branches sure does help.

Congratulations on the Tangerine choice. Too bad it’s wrong. Very, very wrong. Here’s a list of the best one-year GICs in Canada.

Tangerine is in 30th place, but at least they have the lowest minimums!

Granted, there are a lot of banks here that I’ve never heard of, and I follow this stuff relatively closely. Upon quick Google searches, many of them are credit unions in Manitoba and Ontario, as well as a few smaller banks. Oaken Financial is part of Home Capital, everybody’s favorite non-bank mortgage lender.

Let’s take a quick look at the same chart for five year GICs. There isn’t much difference.

On the one hand, you can easily scoff and say the difference between 1.9% and 2.5% isn’t much. And you’d be right, assuming the balance of the GIC was low. The difference per $1000 invested is a whole $6 per year. These days that barely buys you a hamburger at McDonalds.

But in the world of low interest rates, you can’t look at it that way. Instead, look at it as a 26% difference in rates. By making the switch from Tangerine to one of those other banks paying 2.5%, you’ll immediately give yourself a 26% raise.

It’s easy to dismiss all of this by saying you don’t need GICs and never will, because it’s all about the stock market, baby.

In response to that, allow me to present the following chart, which shows exactly why you need some sort of fixed income in a portfolio.

These days, the XBB (that’s Canada’s largest bond ETF) pays a yield that works out to 2.81% annualized. Even though bonds are much more secure than stocks, there’s still the chance of bonds decreasing in value. Many people might say screw it and own the GIC that pays 2.5% instead, knowing it will never go down in value.

The bigger picture

This post isn’t just about GIC rates. It’s about shopping around before you buy financial products.

Each of Canada’s banks is working hard to market themselves. Some, like Tangerine, constantly push how good their interest rates are. Others will use the power of the interwebz, which apparently isn’t just used for porn and sharing cute pictures of kitties. Others will use their clout to offer attractive signup bonuses. And so on.

But for the most part, marketing is just marketing. Tangerine does a terrific job making people believe they’ve got the best rates for savers, and occasionally they do. I’ve got some money parked in a savings account there that’s paying something like 3% for the next couple months. I’m not sure if the deal is still going on, but it’s a great promotion. That beats the pants off any GIC.

The point is this. Before you get a mortgage, GIC, mutual fund, or any other financial product, do a little searching to see what else is out there. Don’t believe anybody who says they have the best deal. The financial industry preys on folks who shrug and stick their money wherever it’s convenient. Don’t be one of those guys.

Nobody in the financial industry is your friend. Except me. Still, you’re going to have to bring the beer when we hang out. And how about snacks?

5 Comments

gene
on September 30, 2015 at 1:13 pm

Agree with this, and the Rammstein is getting me worked up about it. I used to feel somewhat positive about ING Direct/Tangerine. They were never as convenient as PC Financial in my area, so I didn’t use my account much, but they had good rates and it was very convenient to move money around. Now they are more convenient for me since there are a lot of Scotiabank ATMs around, but the rates are not good enough anymore, especially since they have no branches. I’m glad you’re taking them down a notch, they’ve been stuck in my craw lately. Thumbs up and ayyyyyy!

I like Tangerine, and it has some good points. But I also think it has some pretty major weaknesses, like GIC rates. And their mortgage rates aren’t great either, but they still get mortgage business from people who assume they’re competitive because it’s Tangerine. Shop around, people.

Thanks Dave. That’s actually a really important point I meant to touch on and didn’t. You can’t just depend on these aggregator sites to consistently be updated. It looks like it got Peoples Trust very wrong.

Definitely agree with the sentiment to shop around for rates. Far too often people are disappointed with the lack of loyalty that banks show to customers thinking that because they’ve been customers for 10, 20, 30 years that they’ll get preferential treatment. In reality loyalty is almost meaningless – banks are designed to make money.